What’s the Deal with No-Loan Policies?

Can you imagine graduating from college without any debt? In an effort to attract and serve students from all backgrounds, increase economic diversity and reduce loan indebtedness, some colleges began creating no-loan policies over a decade ago.

A no-loan policy replaces student loans with grants (money you do not have to pay back). It is important to keep in mind that no-loan policies may only apply to tuition, not the total net price.

No-Loan Policies Without Income Requirements

Princeton University was the first to offer a no-loan financial policy and the university continues to offer one of the most generous financial aid packages in the country. This policy is considered a “gold-plated” package because it is offered to all students, regardless of financial need and provides a low self-help requirement. (This is the amount of money a student has to contribute through a campus job or student loan). Moreover, if a student receives an outside scholarship, the university will reduce the self-help requirement, not grants.

Princeton can afford this type of policy because of their endowment (the total value of a college’s or university’s investments). Princeton is not the only institution with this type of policy. Davidson College, Amherst College, Harvard University, Pomona College, Swarthmore College, Haverford College, University of Pennsylvania, Yale University, Bowdoin College, Stanford University, Wellesley College, Columbia University, and Vanderbilt University also offer no-loan policies according to FinAid.

Income Maximums and Other Requirements

There are also schools that offer no-loan policies with income requirements. These types of policies were created to increase diversity on campuses by making college more affordable for low-income families.

Brown University offers a no-loan policy to applicants with a total family income of less than $100,000 at the time of admission. Yale and Stanford University policies eliminate the parental contribution but maintain the student contribution and self-help, reducing the loan amount.

The Impact of Changing Economic Times on No-Loan Policies

A decline in endowments as a result of the stock market has made it much more difficult for schools to offer no-loan policies. Even schools with large endowments have reduced their no-loan financial aid packages. Seven colleges restored loans as part of their financial aid packages starting in the fall of 2011.

For those colleges that have income requirements, no-loan policies may not reduce or eliminate debt entirely. Families may need to supplement their financial resources with loans in order to meet the Expected Family Contribution (EFC), meaning they can actually borrow that amount, if needed. If loans are taken out, they are generally applied first to any remaining direct expenses from the school that are not covered with grants, and then to living expenses, room and board, and other unexpected costs.

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